Catalyst? TTIP’s Impact on the Rest

M. Sait Akman, Simon J. Evenett, and Patrick Low

18/06/2015

Apparently a number of assumptions appear to have been made in Brussels and Washington DC about how the rest of the world will react to the successful conclusion of a Transatlantic Trade and Investment Partnership (TTIP). Many of the contributions to a new ebook identify alternatives for third countries that do not involve throwing themselves at the mercy of US and European trade negotiators. TTIP may not trigger the chain reaction that its advocates seek.

Grand ambitions

Ever since government leaders on both sides of the Atlantic launched the negotiations towards a Transatlantic Trade and Investment Partnership (TTIP), it has been claimed that this accord will provide a blueprint for global trade rules for the first half of the 21st century. The motivations behind TTIP will shape the outcome. The EU negotiating mandate, which reflects in part objectives shared with the US, was released to the public by the Council of the European Union in June 2013. Taken at face value, this constitutes an “ambitious, comprehensive, and balanced” enterprise aimed at raising income and creating jobs on both sides of the Atlantic. To date no provisions to join TTIP are envisaged, thereby limiting those parties’ options and shifting the focus to TTIP’s likely impact on outsiders.

Dominoes Redux?

That regional trading arrangements (RTAs) can have adverse effects on third parties provides an incentive for the latter to join the former. In this manner RTAs can beget further RTAs, much like a sequence of falling dominoes. To proponents of Competitive Liberalization, however, the fear of exclusion from a sizeable RTA softens up opposition by third parties to multilateral trade deals. While the logic and evidence supporting these claims has been contested, some strategists may regard TTIP as an effective means by which two large trading blocs can optimise their clout as they experience relative economic decline. Much turns, then, on whether TTIP will harm third parties and how the latter can respond.

The likely economic consequences of TTIP for third parties

Analyses in this eBook identify both potentially negative and positive results for third parties from TTIP. Positive consequences could arise from deeper integration of the two largest economies in the world. If standards were harmonised, for example, exporters to the TTIP zone would only have to worry about compliance with a single regime in an enlarged market.

Negative outcomes flow essentially from three main sources that could hit both trade and investment. First, there may be a direct discriminatory effect that asserts itself though trade diversion. TTIP will be super-imposed on a series of existing preferential agreements. Second, import restrictions may increase as a result of new regulations or regulatory arrangements that ultimately reduce market access. Third, new regulations might raise production costs in third party economies and reduce competitiveness. One suggestion made for reducing the trade-restrictive and cost-increasing consequences of regulatory reform would be to require that convergence occurs to the least rigorous pre-existing standard.

Overall, though, the contributors to this eBook take different views on how likely increased discrimination and market access restrictions will be in a post-TTIP world, including:

• fears of far-reaching negative consequences;

• the conjecture that only goods trade will be seriously affected because the prospects for progress in services look bleak;

• predictions of minimal overall effects because of economic structures and the composition of trade and investment flows or because of the limited reach of the negotiated outcome; and

• a greater emphasis on positive opportunities that will flow from closer EU/US integration.

Scope for countervailing action by the Rest

The national contributions to this eBook from Australia, Brazil, China, India, Korea, Russia, South Africa, and Turkey are where most of the proposals for remedial initiatives are made. As noted above, views differ as to the magnitude of the likely effects of TTIP. Some fear the worst and others believe the consequences will not be great. There were broadly three kinds of damage-minimising courses of action proposed.

First, several authors argued that vulnerability was in part a function of poor domestic policies and that perhaps this debate offered an opportunity to undertake reforms at home. Second, some authors were of the view that the TTIP protagonists were unconcerned about adverse third party effects. They suggested options for minimising such effects. A third proposal was to intensify cooperation with other countries as a means of counterbalancing the weight of TTIP.

Must TTIP force the Rest into major trade deals?

The Rest will hardly stand by should TTIP be successfully negotiated. The question is how the Rest will respond. Ultimately, the Rest has options that go beyond negotiating trade accords. Third parties may, for example, unilaterally adopt key TTIP regulatory standards if they think that is in their interests. They don’t need to sign a RTA with either the US or EU to do this. Moreover, if the competitive disadvantage created by TTIP for a third party is so great, the latter may undertake reforms to their national business environment. For sure, such reforms may benefit American and European commercial interests, but it is far from clear that TTIP will trigger other major trade deals, including reviving the WTO. Some dominoes may not fall.